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April 2014

A recent newspaper article about the increasing costs of natural disasters in NSW caught my attention. This made me think about the possible link between the increased incidence and severity of weather related natural disasters and climate change.

Let’s for a moment assume that we are indeed likely to witness more severe floods, fires, and hurricanes, and more of them, and that this is due to changes in climate that are, at least in part, human induced.

However, as the newspaper article points out, the cost of these more frequent and more severe disasters is socialised: we all pay for it in the form of tighter state and commonwealth budgets, slashing of government social programs, and inevitably, higher taxes in the future. So, if the current Commonwealth government is right in saying that they got a mandate at last years’ election to get rid of the carbon tax, it means that the majority of Australian voting public voted to avoid bearing the cost of climate change mitigation privately (e.g. through higher electricity prices), and prefers to bear the socialised cost of the consequences (e.g. through increased disaster relief expenditures from the Commonwealth and State budgets).

Is this rational? And, is it right? From a pure economics standpoint it could probably be shown that this is rational, but it doesn’t sound right. For one, the private cost of mitigation is likely to be much smaller than the per capita socialised cost of disaster relief, which has already grown pretty rapidly, as the article quoted above shows. Secondly, I suspect that the motivation behind preferring socialising the cost is not particularly ethical: some may think that they will be able to ‘free ride’ and will not be liable to contribute towards meeting the socialised costs of disaster damage due to future climate change. In other words, people are hoping for an easy way out! I am not sure that this can work with a wicked, global problem, such as climate change.

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